Shutdown Continues

Given the lack of major economic data due to the government shutdown, there was very little movement in mortgage rates this week, and depressed volatility is likely to continue until the shutdown ends. Mortgage rates remain near their lowest levels of the year.

The detailed minutes from the September 17 Fed meeting released on Wednesday confirmed that nearly all officials supported the 25 basis point reduction in the federal funds rate due to labor market weakness. The main source of disagreement came from their forecasts for further monetary policy easing, with officials split almost evenly between one or two additional 25 basis point reductions before the end of the year. Investors are similarly divided, anticipating one more rate cut this year but not necessarily two. According to the minutes, inflation concerns were the primary reason that officials remain cautious about the pace of easing. 

Even though rates remain near the lowest levels of the year, mortgage applications weakened this week, according to the Mortgage Bankers Association (MBA). Applications to refinance fell 8% from last week but still were 18% higher than one year ago. The share of adjustable-rate mortgages (ARM) for refinances climbed to 9.5% of total applications from 8.4% last week. Purchase applications dropped 1% from the prior week but were up 14% from last year at this time.

Looking ahead, investors will continue to watch for additional information about tariffs and monitor comments from Fed officials for hints about monetary policy later in the year. With the government shutdown, there may not be any major economic data released next week. As originally scheduled, The Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, would come out on Wednesday. Retail Sales would be released on Thursday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts and Import Prices would be released on Friday. Mortgage markets will be closed on Monday.